Link to original copy published in Investment U: https://www.dropbox.com/scl/fi/fnypdaxbs4u0ggp65ej6v/Investment-U-How-to-Concoct-the-Perfect-Cocktail_Investment-Portfolio.pdf?rlkey=jt9ee0b2lc9ogl80emsfzuct3&dl=0
How to Concoct the Perfect Cocktail/Investment Portfolio
I had an epiphany last week.
In a single moment, a complex - but vital - investment formula suddenly became very real. It all started with a familiar problem...
We were out of beer.
It was Friday night and, after a long week, I wanted a cold one. But with the fridge devoid of any friendly brown bottles or silver cans, I had a choice to make. I could:
Pour myself a tall glass of H2O
Put my shoes back on and walk the three blocks to my local beer proprietor
See what the liquor cabinet had in store.
Almost on cue, a blast of Arctic wind rattled the window. I thought: "Okay, liquor cabinet it is."
We had gin... Scotch... bourbon... rum... not one but two kinds of flavored brandy... vodka... Kahlúa... I was shocked. (Turns out all the BYOB rooftop parties we've hosted over the years have really paid off.)
Then I saw him - my dear friend, José.
José and I hadn't seen each other much since college, but it didn't matter. All of our memories together were fond ones. So, I put my arm around his neck, and we headed to the kitchen. On the way, I pulled up a recipe for "the classic margarita" on my phone.
Angry Liquid Fire
Two ounces of tequila? Check.
One ounce of triple sec? Negative. Apparently that's the one type of liqueur my friends refuse to leave at my house.
One ounce of lime juice? Again, negative. But I did manage to find a not-too-desiccated lemon in the produce drawer, so I figured I was golden.
And finally, the pièce de résistance... salt. Of course I had that one covered. It wasn't rock salt, mind you. But who doesn't have a salt shaker in their pantry? Good enough.
With half of my ingredients technically missing, I decided to move forward. What did it matter, anyway? A margarita is basically just tequila with a dash of filler, right? "It'll be fine," I thought.
I was wrong.
The descriptor I adopted for the taste that rushed through my mouth is "angry liquid fire."
Even if you're not a tequila aficionado, I'm confident you'd agree that my mixture of José Gold, past-its-prime lemon juice and table salt was, in no uncertain terms, disgusting.
After a few sips - and a brief coughing fit - it hit me. I realized why my attempt at mixology had failed miserably. It was because I had ignored one of Investment U's core principles...
I didn't properly allocate my assets.
The Key to Concocting a Strong Portfolio
Every day, tens of thousands of investors make the same mistake I did. They seek to create the perfect "cocktail" of stocks - but they don't ration their ingredients appropriately.
You think I'm grasping at straws? Think about it. If you go heavy on the danger (tequila is really the speculative small cap of the liquor world, is it not?) and light on all the ingredients that could balance it out, the results are sure to be perilous.
Put another way... you can't load up on early-stage biotechs and counteract those holdings with a single share of Johnson & Johnson (NYSE: JNJ).
A truly all-weather portfolio requires a diverse range - a "mix" if you will - of assets. Each one should play off another. This way, when the markets fluctuate, your losses in one area will be made up in another.
Sound familiar? It should. Investment U has been touting its unique asset allocation mix since our founding by The Oxford Club back in 1999.
The blend developed by our Chief Investment Strategist Alexander Green is as follows...
30% U.S. stocks
30% foreign stocks
10% high-grade corporate bonds
10% high-yield bonds
10% inflation-adjusted Treasurys
5% real estate investment trusts
5% precious metals.
Of course, there are lots of factors to consider when determining your own ideal mix - age, appetite for risk, income needs, etc. (You can read more about your options here and here.) But what's important is that you spread your risk across multiple assets and asset classes.
There are sure to be more rough days and weeks ahead. You'll be in good shape as long as you treat the construction of your portfolio like the making of a good drink - with a wide array of flavors in just the right amounts.
One other piece of advice? Keep a bottle of triple sec on hand. You never know when you might need it.
A couple of fresh limes wouldn't hurt, either.